Simulating the Effect of Gasoline Price Reform on Inflation, Total Welfare and Government Budget Deficit (Recursive Dynamic Computable General Equilibrium Model Approach)

Document Type : Scientific paper

Authors

1 Ph.D. student of Islamic Azad University of Kerman

2 Assistant Professor, Department of Economics, Faculty of Literature and Humanities, Kerman Branch, Islamic Azad University, Kerman, Iran.

3 Associate Professor of Economics, Department of Economics, Faculty of Literature and Humanities, Islamic Azad University, Kerman, Iran.

Abstract

Considering the problems caused by the inefficiencies of the current policy of gasoline subsidy allocation in Iran in this study, the results from the simulation of 18 scenarios to reform the price of gasoline, in the form of the type of gasoline subsidy removal (during a three-year period, during a five-year period, and during a ten-year period), the type of support compensation (cash or quota) and the level of support coverage (all income deciles, low and middle income deciles and only low income deciles) were analyzed on gasoline consumption, general inflation, government budget deficit and total welfare. For this purpose, the required data was collected from the social accounting matrix of the Central Bank of the Islamic Republic of Iran, and the new approach of the recursive dynamic calculable general equilibrium model (RDCGE) was used to analyze the data. The results showed that among the examined scenarios, the best scenario is the scenario of removing the gasoline subsidy during the ten-year period (bringing the price from the current $0.05/liter to the FOB Persian Gulf price of $1/liter), cash support compensation (payment Cash equivalent to the quota of 60 liters of gasoline per month) and support compensation for low and middle income deciles. In this case, the price of gasoline should increase annually by 34.93%. Also, gasoline consumption will decrease by 8.0% and the government budget deficit will decrease by 8.2%, and general inflation will increase by 8.5% and total welfare will increase by 1.8%.

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History

  • Receive Date: 08 July 2024
  • Revise Date: 23 September 2024
  • Accept Date: 03 October 2024

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